CrowdStreet Review: Commercial Real Estate Crowdfunding

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Crowdfunding has a long and storied history, one that has received a serious boost in the digital age. In times past, crowds came together to fund books, concerts, and monuments.

Today, you can join the crowd to invest in everything from blockchain, smartwatches, board games, global development initiatives, and Lionel Richie’s head. 

Crowdfunding attained mainstream status on the backs of popular companies like Kickstarter, IndieGoGo, and Kiva, proving the viability of and demand for crowdsourced projects.

It was only a matter of time before the crowdfunding revolution would spread into the financial and real estate industries, disrupting traditional, secretive backroom deals.

In the ten years since the Great Recession, crowdfunding has spawned a slew of companies focused on offering accredited and non-accredited investors the chance to invest in real estate.

Termed equity crowdfunding, and supported via Obama-era legislation, companies have raced to create markets based on successful first-wave crowdfunding companies. 

CrowdStreet is one of a growing number of crowdfunding marketplaces renovating the commercial real estate landscape.

Investors are presented with a detailed prospectus of commercial real estate properties and can invest at the click of a button (and after a thorough review of the required investment forms).

While not still without restriction — some real estate crowdfunding companies require a whopping $100,000 minimum investment — the average-Joe investor now has access to real estate deals, funds and real estate investment trusts (REITs) online.

What is CrowdStreet?

Portland-based CrowdStreet is an online platform and management system that connects investors with commercial real estate opportunities. 

Founded in 2014, the company serves as a marketplace where investors (read: accredited investors) can view, select, and invest in sponsor properties. 

The term ‘sponsors’ is used in place of commercial real estate firms, as these companies sponsor the investment, paying the costs associated with listing on CrowdStreet.

This makes CrowdStreet a unique opportunity for some investors, as investors pay no fees to invest in a property — fees are paid on the sponsor side and represent a sort of advertising and/or management fee. Great news for investors.

Crucially, CrowdStreet is finding success on its platform targeting “18-hour” cities or those like Portland that have high-growth metros and are smaller than America’s largest cities.

TheStreet reported in 2019 that: “The results so far have been more than solid. The average return on the first 14 deals to exit on CrowdStreet's platform is more than 29%, with a 1.6x equity multiple and a holding period of just 2.1 years.”

Company Background

The idea for CrowdStreet came in the wake of the Great Recession and was born after the passing of the Jumpstart Our Business Startups (JOBS) Act of 2012 and the Title III CROWDFUND ACT (passed in 2015. 

The JOBS Act paved the way for an online marketplace that would enable investors (mostly accredited) to invest directly in commercial real estate properties nationwide.

Previously, companies had been stymied, unable to easily raise capital online. The Act effectively sanctioned equity crowdfunding, while decreeing limitations based on an investors yearly income. 

Tore Steen and Darren Powderly, founders of CrowdStreet, recognized the opportunity to re-engineer the commercial real estate investing process.

Traditional funding for commercial real estate was done offline in private or semi-private markets. Investors often had access to a limited pool of investors, those who were well-connected, and usually geographically near the investments. 

The fallout from the 2008 financial crisis, legislative support for equity crowdfunding via the JOBS Act Title III, and the inefficient nature of traditional fundraising created a unique opportunity for Tore and Darren.

The two set about, as they say, “democratizing commercial real estate investing.”

CrowdStreet reports that, since inception and the passing of the Title III component of the JOBS Act, it has funded over 300 projects with 270 sponsors, totaling north of $500 million in investments.

In June 2018 the company secured $8 million in Series B funding.

Marketplace Competition

Online, crowdfunded commercial real estate investment was non-existent ten years ago. The Great Recession and the JOBS Act Title III crowdfunding provisions created this market virtually overnight.

Savvy entrepreneurs rushed into the space, sensing an opportunity to provide real estate investment opportunities to investors looking to get a slice of historically healthy real estate returns.  

While the market is still relatively young, entrepreneurs are taking notice of the interest on both the investor and developer sides.

Competition is steadily increasing in the space, which can be divided into at least two groups as it relates to CrowdStreet: direct and indirect competitors.

Direct competitors are those that offer commercial real estate investment opportunities to accredited investors. Indirect competitors offer accredited and non-accredited investors the opportunity to invest in REITs.  

CrowdStreet Features

How Does CrowdStreet Work?

First and foremost, CrowdStreet is a marketplace that matches investors with sponsors (commercial real estate firms).

The primary draw is that CrowdStreet sources real estate opportunities nationwide, and after a careful vetting process.

This review process, as CrowdStreet says, about 5% of all offerings reviewed are accepted onto the Marketplace, up from the 3%

Average equity raised on the platform varies from between $3 million to $14 million.

CrowdStreet primarily targets accredited investors — those meeting stringent income guidelines — looking to build or diversify a portfolio of commercial real estate deals.

CrowdStreet was designed as a one-stop-shop of sorts for investors to find, qualify, confirm, and purchase investment opportunities nationwide. 

CrowdStreet Offerings

Recognizing the growing interest in both equity crowdfunding and commercial real estate, CrowdStreet offers offerings for both accredited and non-accredited investors.

Accredited Investors

As the primary target market, accredited investors receive the bulk of offerings and focus on the CrowdStreet platform. 

• Individual deals. Investors can browse the screened deals available on CrowdStreet and can signal interest, ask questions, fill out investment-related paperwork, submit funds for an investment, and track the investment process.
• Funds and vehicles. For investors looking for a quicker route to commercial real estate exposure, CrowdStreet offers blended portfolios with multiple assets from deals around the country. This is more of a passive, index-style investment option.
• Advisory Services. CrowdStreet offers privately managed accounts for investors needing a custom-built portfolio. This carries a $250,000 minimum account balance and variable fees.

Non-Accredited Investors

Ostensibly, CrowdStreet set out to democratize real estate investing. To that end, they have created offerings for investors unable to meet the strict financial guidelines of an accredited investor.

This is referred to as A+ Investing and is available to both non-accredited and accredited investors.

• REITs. At the time of writing, CrowdStreet only had several REITs available to non-accredited investors. These are diversified investments with minimums in the $1,000 to $5,000 range.

Show Me the Money — CrowdStreet Fees

Unlike some of its competitors, CrowdStreet charges accredited investors no fees when investing directly in single-property deals.

How can it manage such a feat? The company charges the sponsor, that is the commercial real estate firm, to host the deal on the CrowdStreet marketplace. 

However, when it comes to CrowdStreet’s managed portfolio options, including REITs, it does charge fees.

Costs range from 2% to 2.75% or more on assets under management and may decrease over time. REITs also have a similar fee range.

CrowdStreet also offers performance metrics for it's deals. 

The CrowdStreet Platform​​​​

CrowdStreet is more than just a marketplace matching investors and sponsors. It was designed with the needs of the investor in mind and is meant to an all-inclusive portfolio management system. 

The CrowdStreet team has layered four management systems together to provide investors (and sponsors) with a comprehensive platform.

Posting platform. This is the marketplace where deals are posted and reviewed.

Transaction center. This is where investors can invest in deals and send funds to sponsors.

Investor room. This is a portal where investors can review the on-going progress of investments.

Management portal. This portal is for the sponsors to manage the investors through the investment lifecycle.

Pros & Cons

Getting Started with CrowdStreet​​​​

Anyone can sign up on CrowdStreet for no cost. Registration is a fairly straightforward process consisting of three steps.